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PUBLIC VERSION Before the UNITED STATES COPYRIGHT ROYALTY JUDGES THE LIBRARY OF CONGRESS Washington, D.C. ) In re ) ) DETERMINATION OF ROYALTY ) Docket No. 14-CRB-0001-WR (2016-2020) RATES AND TERMS FOR ) EPHEMERAL RECORDING AND ) DIGITAL PERFORMANCE OF ) SOUND RECORDINGS (WEB IV) ) ) WRITTEN DIRECT TESTIMONY OF SIMON FLEMING-WOOD (On behalf of Pandora Media, Inc.) Introduction 1. My name is Simon Fleming-Wood. I am the Chief Marketing Officer of Pandora Media, Inc. (“Pandora” or “the Company”). I report directly to Pandora’s CEO Brian McAndrews, and I am a member of the Company’s executive committee. I have served as CMO of Pandora since I joined the Company in October 2011. I graduated with a Bachelor of Arts in Political Science from Stanford University in 1991. 2. Before joining Pandora in 2011, I was the founding Vice President of Marketing at Pure Digital Technologies, where I was responsible for the creation, development, and introduction of the very successful Flip Video brand, which made enormous advancements in personal video and sold more than seven million cameras in three years. After Pure Digital Technologies was bought by Cisco in 2009, I held the position of Vice President of Marketing for the Cisco Consumer Products group. In that role, I oversaw the worldwide marketing organization for Cisco’s consumer business, including the Linksys and Flip Video brands, and led the development and execution of all integrated marketing efforts, including brand strategy, research, advertising and media, public relations, marketing partnerships, and e-commerce. I have also held senior marketing positions at Sega.com, the Learning Company/Mattel, and the Clorox Company. 3. As Chief Marketing Officer, I direct a team currently consisting of thirty-four people who are responsible for four primary areas of the Company: (1) marketing and brand strategy, (2) public relations and communications, (3) business development, and (4) the Pandora One subscription business. The marketing and subscription teams are primarily responsible for audience growth, marketing analytics, and managing Pandora’s brand. The public relations and communications team manages Pandora’s public image. The business development team leads our efforts to grow Pandora’s availability into new delivery platforms, like in the automobile and consumer electronics. 4. I present this testimony to the Copyright Royalty Judges to provide an overview of Pandora’s service and features, including the basics of how the service works and certain promotional benefits it provides to artists and labels, and to discuss the competitive environment in which Pandora operates. In short, Pandora is a form of radio – offered via the Internet, and allowing users to personalize their listening experience to some degree, but radio nonetheless. Our chief competition for both listeners and advertising dollars is terrestrial radio (a fact even more evident now that Pandora is increasingly available in automobiles and employs local sales people in 36 local markets), with satellite radio and other forms of non-interactive Internet radio following behind. The Pandora Listener Experience 5. Pandora is the leading Internet radio service in the United States, and is best known for its ability to enable listeners to create personalized, non-interactive radio stations – 2 that is, a “lean-back,” radio-style listening experience – with features that permit listeners to learn more about the music they are listening to and enable them to purchase it via links to digital stores such as iTunes and Amazon. At Pandora, we pride ourselves on the simplicity of our product and ease of the listening experience. To begin using Pandora, a listener need only create a profile, log into the service (via website or mobile/smartphone application), select or “seed” a station, and then enjoy the music. 6. Creating a Profile. The first time a listener accesses the Pandora platform, she is prompted to create a listener profile using her email address, password, date of birth, zip code, and gender. Once registered, the listener can log into her account from a computer, mobile phone, or any other Pandora-enabled device for a seamless experience that accesses all of her previously-created stations. 7. Listener Interface. After logging in, the listener begins to listen by creating a new station, selecting from previously saved stations, or selecting from 690 pre-populated genre stations. As the music plays, information about the currently-playing song will be displayed, including song title, artist name, and album title. For many songs, Pandora also displays biographical information about the artist, song lyrics, album cover art, and a recommended list of similar artists that the listener may enjoy. These features allow the listener to learn more about the artists and music she listens to on Pandora and discover additional music she might enjoy. 8. Selecting a Station. Pandora has two types of stations: personalized stations and genre stations. To create a personalized station, the listener simply types in the name of an artist, composer (for classical music), genre, or song title to serve as the starting point or “seed” for the station. Pandora then automatically creates a station centered around that seed, which – through use of our patented Music Genome Project (“MGP”) technology and a combination of playlist 3 algorithms – will play songs whose musicological characteristics our MGP reveals as resembling those of the seed. Genre stations, for their part, are pre-programmed collections of songs that reflect a certain musical style or preference. Pandora’s genre stations range from hit-driven stations such as “Today’s Hits” or “Today’s Country” to lesser-known or highly specialized genres such as “Rockabilly,” “Classic Ska,” and “Viking Metal.” Each genre station is populated with songs that are hand-selected by Pandora’s music curation team to reflect that musical genre or style.1 Although each listener may create up to 100 stations, the majority of Pandora’s active users listen to six stations or fewer. All of Pandora’s stations stand in stark contrast to on-demand, “interactive” services like Spotify and Rhapsody, where listeners self- select the particular music to which they wish to listen. 9. Using Pandora. Pandora also features a unique feedback system, whereby listeners can further indicate their music preferences by pressing a “thumbs up” or “thumbs down” icon while a song is playing. A “thumbs up” indicates a listener enjoys a song and would like to hear more songs like it. A “thumbs down” indicates the listener does not enjoy the song; in addition to storing the feedback, Pandora skips “thumbed-down” songs (within certain limits per hour). Pandora records this listener feedback and uses it to shape future playlists generated for that particular listener and for other listeners who listen to similar music. Although we think “thumbing” is a valuable feature of Pandora’s service and our listeners have “thumbed” more than 46 billion times since our launch, in reality a large number of listeners (approximately ) do not use the feature on a consistent basis, and prefer to simply “lean back” and listen to the music that is played for them. A listener can also “skip” a song, rather than using the “thumbs 1 One additional benefit of Pandora is that it is available in certain geographic areas across the country where certain genres would not otherwise be available over traditional radio. As but one example, a listener told Pandora: “You’re the greatest. We lost our only jazz station where I live and so am making up for lost time with your site. Keep up the great work.” 4 down” button; e.g., if a listener likes a song and may want to hear it again, but does not want to listen to that song at that particular moment, the listener can “skip” to the next song (again within hourly limits on skips). 10. Sharing on Pandora. Because people like to share music they love and friends and family remain a key source of music discovery, Pandora has enabled a number of features that allow listeners to share their stations or other information about the music to which they are listening. For example, every listener has a publicly available “listener profile” that includes information regarding the stations that listener has created and songs she has “thumbed up.” Listeners can also share their stations through an on-screen “share” button. Pandora has a Facebook integration that allows a listener to choose to share information about the music to which she is listening directly to her Facebook page. 11. Buy Button. The Pandora player also includes a “Buy” button, which directs listeners to iTunes or Amazon.com, where they can purchase the songs they enjoy. Pandora earns a modest commission for each download sold as a result of a user pressing the “Buy” button. While our data indicates that Pandora listeners are purchasing recorded music through the “Buy” button, that data does not necessarily reflect the total overall impact Pandora has on purchasing, since it does not account for purchases inspired by Pandora that listeners make in other ways (e.g., by opening the iTunes application or a logging onto Amazon.com directly to make her purchase). 12. Attached as Pandora Exhibit 2 is a short video demonstration that illustrates the Pandora user experience. 5 Competitive Landscape 13. Pandora faces intense competition from other providers of music audio content, including terrestrial radio, satellite radio, and other digital music services.